Just a quick note to start. Italy still doesn’t have a government. Now moving on…
Fitch are a bit late to the Cyprus party, but when they do bother to turn up it’s rarely with good news
Fitch Ratings has taken rating actions on the three largest Cypriot banks following the agreement the Eurogroup reached with the Cypriot authorities on Monday morning as a precondition to provide EUR10billion in financial assistance to Cyprus.
Fitch has downgraded the Long- and Short-Term Issuer Default Ratings (IDRs) of Cyprus Popular Bank (CPB) to Default (D) and those of Bank of Cyprus (BOC) to ‘Restricted Default’ (RD) from ‘B’, respectively, on losses imposed on senior creditors. The fact that BOC will continue to operate in Cyprus, while CPB will be wound-down drives the difference in their Long-term IDRs (‘RD’ for BOC; ‘D’ for CPB) The Support Rating Floors (SRF) of the two banks have been revised to ‘NF’ from ‘B’ and Support Ratings (SR) to ‘5’ from ‘4’ as a result of the bail-in of senior creditors. Following this, Fitch has also downgraded their VR to ‘f’ from ‘c’.
Fitch has also maintained the Rating Watch Negative (RWN) on Hellenic Bank’s (HB) ratings except for its ‘cc’ VR, which has been revised to Rating Watch Evolving (RWE) from RWN.
This comes after yesterday’s S&P downgrade of Bankia in Spain. Speaking of S&P, they have also been busy with their macro assessments and have again lowered their expectations for the Eurozone:
Standard & Poor’s on Tuesday cut its euro-zone gross-domestic-product forecast for 2013 to negative 0.5% from a previous estimate of a decline of 0.1%, citing difficult financial conditions in the region. “There are reasons to believe that monetary policies in the euro zone are no longer able to offset, at least partly, the restrictive effects of tight fiscal policies,” EMEA Chief Economist Jean-Michel Six said in a note. “As the private and the public sectors in most countries continue to deleverage simultaneously, the main supporting factor for growth has to be found in foreign sales,” he said. Export performances across the region have varied considerably, the report said, with Spanish and Portuguese exports performing well, while French and Italian exports have underperformed
French consumer sentiment was also down which, given recent poor economic data from the country, isn’t really a surprise:
French consumer sentiment eroded further in March amid increased worries about unemployment and the outlook for the quality of life in France. Insee’s consumer climate indicator fell to 84 in March from 86 in February. Analysts had expected an unchanged to lower confidence reading.
Consumers’ willingness to spend on big-ticket items edged up from a four-year low in March, but they were more pessimistic about the outlook for their personal financial situations.The Insee survey was in line with a recent CSA survey which showed that the percentage of French characterizing themselves at optimistic about their personal futures declined in March.
Insee’s survey showed that consumers’s expectations for the quality of life in France were more pessimistic in March, while expectations for unemployment continued to worsen.
France continues to be on my watch list along with the Netherlands.
Turning to Spain, I warned back in July last year that I saw little good coming to the country in 2013 due to yet another round of fiscal tightening including an increase in the VAT. Over the last few months the official sources from the country have pre-announced revisions of both the GDP and deficit targets for this year, and overnight it has occurred again.
The Bank of Spain on Tuesday predicted that Spain’s economy would contract by 1.5 percent year on year in 2013, far worse than official forecasts, and that unemployment would hit another record high of 27.1 percent in the course of the year.
The Spanish economy is officially seen contracting by 0.5 percent this year, though the government is widely expected to revise that figure downwards when it publishes its updated forecasts next month.
In its yearly forecasts for the Spanish economy, the Bank of Spain also said it saw the country’s public deficit reaching 6 percent of gross domestic product for 2013, above targets set by Europe of 4.5 percent of GDP.
It predicted that the Spanish economy would grow again by 0.6 percent in 2014 and that the public deficit would be 5.9 percent of GDP next year.
The full report from the bank of Spain, available below, shows that private sector deleveraging and government fiscal tightening are still having a next deflationary effect on the Spanish economy. The bank, however, is optimistic that the growth in exports, due to renewed competitiveness and improvements in the international economy, will continue over 2013 with an estimate that overall growth will return by 2014. Personally I think those estimates are overly optimistic. Until there is a lift in the rate of decline in either Spanish house prices or unemployment I expect the non-external sector to be a larger drag on the economy than the Bank of Spain has calculated, and the latest downgrade of Bankia shows all is still not well in the banking system.
Spain, however, is performing well in the export sector so there is some hope that I am wrong.